The Big Short: Inside the Doomsday Machine

Who understood the risk inherent in the assumption of ever-rising real-estate prices, a risk compounded daily by the creation of those arcane, artificial securities loosely based on piles of doubtful mortgages? Michael Lewis turns the inquiry on its head to create a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his number-one best-selling Liar’s Poker.

How could the world's most advanced and enlightened economy allow an irresponsible, greedy and self-deluded congregation of Wall Street bankers to accumulate such gargantuan financial losses that the whole country was imperiled? For, as Churchill might have put it, never in the realm of economic activity have so many suffered so much at the hands of so irresponsible a group of bankers.

Michael Lewis attempts to answer this question through the stories of the relatively few professional investors who took the time to dig into the subprime mortgage market and perform careful credit analysis of the loan quality underpinning the whole market. What they found was not surprising. It was a credit disaster waiting to happen. What is revealing is the reception they received from mainline Wall Street firms, their own investors, and the credit rating agencies. In nearly all cases their views were discounted ("it could never happen in the US housing market;" "subprime loan losses will not all happen at the same time") and they were dismissed as misfits. The Wall Street money machine, fueled by huge financial rewards, animal spirits and a "we know better" culture, simply moved on heedlessly to even greater risks and excess. Well worth the read, but I would start with David Faber's book ("Then the Roof Caved In") if you are new to the mortgage-backed security world of Wall Street.

Stress Test: Reflections on Financial Crises

On January 26, 2009, during the depth of the financial crisis and having just completed five years as President of the Federal Reserve Bank of New York, Timothy F. Geithner was sworn in by President Barack Obama as the 75th Secretary of the Treasury of the United States. Now, in a strikingly candid, riveting, and historically illuminating memoir, Geithner takes listeners behind the scenes during the darkest moments of the crisis.

I have read a number of books on the 2008 Financial Crisis, and yet learned a lot from Mr. Geithner’s book. He emphasizes two key points that are critical for understanding why things became so serious:

1. The financial institutions that fueled the “subprime” crisis were highly leveraged. I already knew that, but had not appreciated the point that they were leveraged by means of extremely short-term debt—“overnight” repos in many cases. Thus, once confidence left the financial markets, these institutions were literally hours away from running out of money to pay their debts as they came due. Also important here is the fact that the most important players in the subprime market frenzy were “Wall Street” institutions outside the traditional banking system and thus outside the extensive examination and reporting requirements imposed on the traditional banks.

2. The financial markets were gripped by "Panic" once the players woke up and actually appreciated the fact that the subprime loans were not supported by any realistic credit review, but merely by the expectation that US real estate values would continue to rise and allow the loans to be refinanced. Once panic set in, investors wanted out period. They were not ready to analyze distinctions in credit quality, they simply wanted to avoid losses. That set in motion a vicious self-fulfilling cycle in which all tranches of CDO portfolios fell in value, buyers disappeared, and forced sales of securities through margin calls or funding obligations led to sales at “fire sale” prices and serious capital losses.

Mr. Geithner also addresses a point that most people (myself included) found very troubling in the government’s response to the financial crisis: the government’s approach of throwing lots of money and government guarantees at institutions who were clearly guilty of highly irresponsible management practices. In other words, these were institutions that deserved a punch in the jaw rather than taxpayer cash in their wallets. Geithner points out quite persuasively that although such sentiments are fully justified they are not useful responses to a financial crisis that endangers the whole economic system. “When the neighborhood is on fire, the focus should be getting the fire contained and out, rather than chasing down the arsonists who started the fire,” or words to that effect, is how he frames the issue.

I will add one point of serious criticism I have about the book. Mr. Geithner touches only very briefly and superficially on his role as head of the New York Fed in failing to supervise properly the lending practices of Citibank and Citigroup in the run-up to the 2008 financial crisis. Citi was the only traditional banking institution (though it combined a large securities trading operation after the merger with Smith Barney) that had such large subprime loan exposures on its books that it has to be classified as one of the principal culprits in the irresponsible subprime lending frenzy. How did the NY Fed miss its exposures and why? There are no doubt important “lessons learned” from those questions that Mr. Geithner might have explored in depth but did not.

Peter the Great: His Life and World

This superbly told story brings to life one of the most remarkable rulers––and men––in all of history and conveys the drama of his life and world. The Russia of Peter's birth was very different from the Russia his energy, genius, and ruthlessness shaped. Crowned co-Tsar as a child of ten, after witnessing bloody uprisings in the streets of Moscow, he would grow up propelled by an unquenchable curiosity, everywhere looking, asking, tinkering, and learning, fired by Western ideas.

Here is another example of a masterful storyteller and historian at work. The Massie histories read like personal biographies—amply supported by contemporary letters and memoirs, they furnish memorable and personal accounts of the time. You will be much enriched by this book, as well as all others that Massie has authored.

Here one learns a number of unforgettable and vivid stories about Peter the Great. For example, his frequent habit of traveling abroad “incognito” in order to satisfy his insatiable curiosity about the technology and culture of the lands he visited without the waste of time and needless formality that he would have encountered on an official visit as Czar of Russia. A man of restless energy and great ambition, he recognized early on that Russia must learn from the West, rather than stay isolated in its own traditions (a lesson the current leader, Mr. Putin, might well ponder anew). We also learn that Peter was a man of good luck. His great victory over the Swedish King Karl XII was nearly thrown away two years later when the Ottoman Turks in loose alliance with the Swedes were in a position to destroy the bulk of Peter’s army and likely would have had Karl been on the scene. Instead, a very mild peace was agreed by a Turkish commander who did not fully understand the strength of his position.

You will enjoy this book for the many great insights on the period brought alive by personal stories, apt descriptions, and extremely well informed commentary of Mr. Massie, all supported by meticulous research and a very rare talent for interesting and engaging writing.

Duty: Memoirs of a Secretary at War

From the former secretary of defense, a strikingly candid, vivid account of serving Presidents George W. Bush and Barack Obama during the wars in Iraq and Afghanistan. When Robert M. Gates received a call from the White House, he thought he'd long left Washington politics behind: After working for six presidents in both the CIA and the National Security Council, he was happily serving as president of Texas A&M University. But when he was asked to help a nation mired in two wars and to aid the troops doing the fighting, he answered what he felt was the call of duty.

The Robert Gates memoir is highly candid and thoughtful. It sets forth without sugarcoating the challenges and frustrations facing a thoughtful and highly competent policymaker in the highest levels of US Government. Many of the frustrations he cites are rather alarming if not fully surprising—e.g., irresponsible US politicians focused simply on political favor at home; unrealistic policy goals; bureaucratic inflexibility in the face of clearly urgent priorities at the war front; allies that are allied in name only. It is not surprising that Mr. Gates considered his time as Defense Secretary during both the Iraq and Afghan Wars as anything but a joy. The one exception he cites is the inspiration he received from meeting and visiting with young soldiers, sailors, marines and members of the Air Force throughout his term of office.

I highly recommend the book for a very realistic look at the behind the scenes realities of making policy at the Cabinet level in the US Government and of dealing with allies and adversaries throughout the world on security issues. It is not a pretty picture, but I commend Mr. Gates for writing a “reality check” that we can all profit from reading.

Money and Power: How Goldman Sachs Came to Rule the World

From the best-selling, prize-winning author of The Last Tycoons and House of Cards, a revelatory history of Goldman Sachs, the most dominant, feared, and controversial investment bank in the world. William D. Cohan has constructed a vivid narrative that looks behind the veil of secrecy to reveal how Goldman has become so profitable - and so powerful.

The reason to buy this book is for the detailed insights you gain as to how Goldman (alone among the major Wall Street banks) actually prospered during the financial crisis of 2007-2008. The author has done a fine job of describing the key events and decisions that started in December 2006: the push by its mortgage trading desk for authority to put on large short positions when it recognized early signs of serious problems ahead; actions by top management to move early and decisively to reduce long exposure in the subprime mortgage market; and the discipline and focus on risk management at top management levels that forced realistic “mark to market” prices for the mortgage backed securities on its books. As one of the people the author interviewed in research for the book put it, had the other Wall Street banks taken actions similar to what Goldman did, we would not have had a financial crisis in 2008. (That comment, by the way, does not in my view absolve Goldman in any way of irresponsibility for being a large marketer and seller of “subprime” mortgage backed securities prior to 2007. Such securities were based on underlying collateral that was frankly ridiculous and a lasting shame to the parties who originated them, the Wall Street banks who sold them, the ratings agencies who gave them absurd “AAA” ratings, and the federal regulators who simply sat back and watched it all happen.)

The rest of the book is not of the same quality, although it does have a good overview of the history and evolution of Goldman Sachs, including a number of the major leadership figures in the firm over its history as well as bumps in the road it has had to navigate over time. He also includes a number of less well documented impressions of Goldman gathered from competitors, the press, and Congress—many of whom are frankly somewhat dubious sources as to the actual facts. Such sources do, however, serve as good illustrations of why Goldman has suffered some major blows to its public reputation over the past few years.

Nothing to Envy: Ordinary Lives in North Korea

Barbara Demick's Nothing to Envy follows the lives of six North Koreans over fifteen years - a chaotic period that saw the death of Kim Il-sung and the unchallenged rise to power of his son, Kim Jong-il, and the devastation of a far-ranging famine that killed one-fifth of the population. Taking us into a landscape never before seen, Demick brings to life what it means to be an average Korean citizen, living under the most repressive totalitarian regime today.

Hard to fathom that with the collapse of the Soviet Union and the de facto economic transformation of China that there still exists in North Korea an extreme Stalinist-model dictatorship. Not quite Stalinist of course, since the North Korean regime seems to follow a “royalist” model, with the Supreme Leader passing the baton to a son as successor. This book shows in a wealth of everyday detail and very engaging personal stories exactly how terrible such a regime makes life for ordinary people who are unfortunate enough to live there. The author is skilled enough that we not only learn the facts about life in everyday North Korea, but also identify with the characters whose stories she presents. In that respect the book reads like a novel and not just a news article. Very informative and worthwhile.

My only quibble about the book is the quality of the narration. While the narrator is lively enough and has a pleasing enough voice, on many occasions her reading was not in proper context. That is, she accented the wrong phrase or failed to accent the right phrase in a sentence, or failed to make a clear transition through a pause or other means from one thought to the next. Suggest she do her homework a bit more thoroughly next time.

David and Goliath: Underdogs, Misfits, and the Art of Battling Giants

In David and Goliath, Malcolm Gladwell challenges how we think about obstacles and disadvantages, offering a new interpretation of what it means to be discriminated against, or cope with a disability, or lose a parent, or attend a mediocre school, or suffer from any number of other apparent setbacks. Gladwell begins with the real story of what happened between the giant and the shepherd boy those many years ago.

Malcolm Gladwell typically provides highly interesting insights and food for thought challenging popular perceptions. The best example in this book is the title story of David and Goliath. He shows quite persuasively that David was no innocent shepherd boy, but a highly skilled variant of a well-known military fighter of his time: the “slinger” who attacked his opponent from a distance with well-directed and lethal stones from a slingshot. He caught Goliath by surprise, but his weapon and role were not that great a surprise.

That said, Mr. Gladwell does make a couple of claims in this book that in my mind were not well-founded. The first related to the supposed strategic mistakes made by the British Army in Northern Ireland in the early 1970’s in trying to bring peace to that troubled region. The second is his claim that the California “Three Strikes” law eventually proved harmful to the state. I think the Northern Ireland conclusion is overdrawn. Yes, the British made many mistakes in that peacekeeping role. However, I do not believe they were the strategic dunderheads that Mr. Gladwell suggests they were. They had a very difficult problem, with IRA terrorists on one side and extremist Ulster “orangemen” on the other. In the case of the California “Three Strikes” law, I live in California. I voted for Three Strikes and believe it has played an important role in bringing down California crime rates. Has it been too severe in particular cases? Yes. Does it have room for improvement? Also yes. But has it been a mistake overall? I think not and respectfully disagree with Mr. Gladwell on his conclusion.

Castles of Steel

In a work of extraordinary narrative power, filled with brilliant personalities and vivid scenes of dramatic action, Robert K. Massie, the Pulitzer Prize-winning author of Peter the Great, Nicholas and Alexandra, and Dreadnought, elevates to its proper historical importance the role of sea power in the winning of the Great War.

Robert Massie served a tour of duty onboard a US aircraft carrier. That may account in part for his remarkable ability to describe in vivid and insightful detail the weather conditions, shipboard activity, and battle capabilities of the naval vessels that took part in World War I. His eye for insightful detail extends to his descriptions of the high level strategic debates that took place in the British and German war cabinets and admirals’ councils that made the crucial decisions which in the end determined the outcome of the war. In particular, the German decision finally endorsed by the Kaiser in 1917 to authorize unrestricted submarine warfare against all neutral merchant shipping in an effort to bring Britain to its knees through lack of supplies and foodstuffs instead led to the decisive entry of the US into the war that year.

Most interesting throughout the book are the decisive roles played by minor incidents of incompetence, hesitation, miscommunication, or misjudgment based on human foibles or the confusion and fog of war. These include Admiral Milne’s failure to block the battle cruiser Goebben from escaping to the Dardanelles; Captain Thompson’s careless handling of critical intelligence that could have turned the tide in the Battle of Jutland; the failure of Admiral Beatty’s flag officer to assure clear and proper signaling of the Admiral’s orders; the British Admiralty’s failure to immediately pass on critical intelligence during the Battle of Jutland to Jellicoe because the communication room was left in the hands of a clueless low level officer.

All in all, a very interesting account that will provide a rich source of lessons on the critical decisions made by the naval leaders in World War I.

The Case of the Love Commandos: From the Files of Vish Puri, India's Most Private Investigator

In this contemporary Romeo and Juliet story set within India's caste system, private investigator Vish Puri faces his most difficult challenge to date - a high-stakes mystery involving one of India's most controversial commodities: love. When Ram and Tulsi fall in love, the young woman's parents are dead set against the union. She's from a high-caste family, but her boyfriend is an untouchable from the lowest strata of Indian society. Young Tulsi's father locks her up and promises to hunt down and kill the "lover boydog."

This is another very entertaining gem in the Vish Puri detective series. Besides the well thought out and well-paced mystery plot (actually, plots), the book features detailed and lively descriptions of everyday life in modern India—the food, the traffic jams, the religious practices, as well as insights into social customs and family life. As in the previous Vish Puri stories, there are particular social issues about India that are featured in this story. In this case the social themes are the changing views in India toward arranged marriages and toward the social caste system. These themes are woven naturally into the broader tale and treated at times with humor as well as from their serious side.

A word about the narrator, Sam Dastor. In my opinion the narration of this story makes it twice as enjoyable as a mere visual read would be. The narrator captures Indian accents and speaking mannerisms in a way that makes the story and characters come fully alive. I highly recommend this book on its merits alone. I doubly recommend it with Sam Dastor as the narrator.

Eichmann in Jerusalem: A Report on the Banality of Evil

Sparking a flurry of heated debate, Hannah Arendt's authoritative and stunning report on the trial of German Nazi leader Adolf Eichmann first appeared in The New Yorker in 1963. This revised edition includes material that came to light after the trial, as well as Arendt's postscript. A major journalistic triumph by an intellectual of singular influence, Eichmann in Jerusalem is as shocking as it is informative - an unflinching look at one of the most unsettling (and unsettled) issues of the 20th century.

This is a very worthwhile read for the very troubling questions it raises about the shaky moral foundations of modern civilization. Hannah Arendt was sharply criticized by many for her approach to this book, including the subtitle “… the banality of evil.” I fully agree with that particular criticism. She was referring to the banal personality of Adolf Eichmann, who does appear as a self-deluded individual who found recourse in empty, rather “banal” clichés to justify his conduct and defend himself as a fundamentally decent person. The evil depicted in the book is, however, anything but banal. It was the unfathomable and almost incomprehensible mass murder by the Nazi government of all Jews they could capture in Germany and in other European countries they dominated.

The troubling question raised by the Eichmann case is how he (and so many like him) as a decent German “everyman” could have so lost his moral bearings that he became a willing instrument of state-sponsored mass murder directed at innocent civilian populations. He justified himself as following the established German legal order as directed by a great leader (Hitler), that obedience to state authority was a sacred duty as a German citizen, that he did what he could to lessen the sufferings of those whom he was transporting to death camps, and that he did not personally dislike Jews nor ever kill anyone himself. He had seen the death camps. He knew what was going on. Still, his main frustrations and worries seemed to center on bureaucratic confusion and infighting, slights to his authority as chief SS officer for transportation to the death camps, and his slow rate of career advancement given all that he had contributed to a smooth implementation of the transportation aspects of the “final solution” policy.

How could a truly decent person adapt his career priorities, personal talents, and otherwise normal day to day concerns to an enterprise that was fundamentally an instrument of incalculable evil and of untold and immeasurable sufferings? The answer in Eichmann’s case seems to have been a perversion of his moral sense such that the supreme and overriding good was to follow the dictates of Nazi government policy despite its flagrant violation of fundamental tenets of right and wrong he must have known since childhood. Wartime conditions, post Versailles feelings of resentment in Germany, the “stab in the back” myth as a supposed explanation for the German surrender at the end of World War I, a long German and Austrian history of anti-semitism no doubt played important roles. However, those circumstances do not excuse nor fully explain Eichmann. His story suggests that all human beings are fallible, subject to corruption of their moral sense, and capable under certain conditions of becoming untroubled instruments of horrible crimes.

We see such people today amongst the violent jihadists. We should best be on our guard against all political movements that seek to place some particular goal or policy above all considerations of right and wrong that have guided enlightened mankind throughout history.

Catherine the Great: Portrait of a Woman

The Pulitzer Prize–winning author of Peter the Great, Nicholas and Alexandra, and The Romanovs returns with another masterpiece of narrative biography, the extraordinary story of an obscure young German princess who traveled to Russia at fourteen and rose to become one of the most remarkable, powerful, and captivating women in history.

I had an opportunity to visit St. Petersburg, Catherine’s Palace in Pushkin, and the Hermitage this summer. During the trip we heard much about Catherine the Great, including this book recommendation. It did not disappoint. Massie does an excellent job of making 18th Century European history come alive. It is an improbable story: a princess from a small German principality and minor noble family emerges as the Czarina of Russia after the abdication and death of her husband, Peter III. Not only Czarina, but a most hard-working, capable, patriotic, and winsome head of Russia, known for her enlightened views and very able administrative and leadership qualities. For that reason she became known after her death as Catherine "the Great."

The book sets forth Catherine’s story in very personal terms, depicting her ambitions, hopes, loves, sufferings, frustrations, fears, and triumphs. As a story it makes the history and events of the time much more memorable and real, particularly as compared to the chronologies in which history is more typically presented. I found the book very enriching and greatly expanded my understanding of the era and the history of Russia.

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